WHY PMLA 2002 PROVISIONS ARE STRINGENT?
A Three (3) Judge bench of hon’ble Supreme Court has recently on July 27th 2022 in batch petitions captioned as VIJAY MADANLAL CHOUDHARY & ORS SPECIAL LEAVE PETITION (CRIMINAL) NO. 4634 OF 2014 have settled the issues relating to power of Enforcement Directorate (ED) and its ambit under the Prevention of Money Laundering Act 2002 (PMLA). The pleas concerning validity and interpretation of certain provisions of the Prevention of Money Laundering Act, 2002 and the procedure followed by the ED while inquiring /investigating offences under the PMLA, being violative of the constitutional mandate is set to rest. The parliament has amended Section 45 of the 2002 Act vide Act 13 of 2018, so as to remove the defect noted in a decision of Supreme Court in Nikesh Tarachand Shah vs. Union of India & Anr (2018) 11 SCC 1. The amendment came to be challenged before different High Courts including before Supreme Court. The efficacy of amended Section 45 of the 2002 Act was put in issue and answered by the concerned High Courts. Those decision(s) have been assailed before the Supreme Court and the same was forming part of the batch petitions.
The Supreme Court in a batch of petitions had to
deal with the pleas concerning validity and interpretation of certain
provisions of the Prevention of Money Laundering Act, 2002 and the procedure
followed by the Enforcement Directorate, while inquiring into/investigating offences
under the PMLA, being violative of the constitutional mandate. In some cases
where relief of bail was prayed, the efficacy of amended Section 45 of the 2002
Act was put in issue and answered by the concerned High Court. All such
decision(s) were assailed before the Supreme Court vide separate writ petitions
and heard together as overlapping issues have been raised by the parties.
Various other civil and criminal writ petitions, appeals, special leave
petitions, transferred petitions and transferred cases had come up for hearing.
The crux of the controversy is
section 45 and section 50 of PMLA, besides the provisions of Section 3 and
Section 24 of the Act and in the backdrop of several objections to the provisions
of the PMLA 2002, the Supreme Court had to deal with all such issues so as to set
at rest any issues subsisting with regard to the said enactment. Some of the provisions
of PMLA are reproduced herein for ready reference:
24.
Burden of proof.—In any proceeding relating to
proceeds of crime under this Act,—
(a) in the case of a person charged with the offence of
money-laundering under section 3, the Authority or Court shall, unless the
contrary is proved, presume that such proceeds of crime are involved in
money-laundering; and
(b) in the case of any other person the Authority or Court, may presume
that such proceeds of crime are involved in money-laundering.]
45. Offences to be cognizable and
non-bailable.—
(1) [Notwithstanding anything contained in the
Code of Criminal Procedure, 1973 (2 of 1974), no person accused of an offence 2
[under this Act] shall be released on bail or on his own bond unless—]
(i) the Public Prosecutor has been given a
opportunity to oppose the application for such release; and
(ii) where the Public Prosecutor opposes the
application, the court is satisfied that there are reasonable grounds for
believing that he is not guilty of such offence and that he is not likely to
commit any offence while on bail:
Provided
that a person, who, is under the age of sixteen years, or is a woman or is sick
or infirm, [or is accused either on his own or along with other co-accused of
money-laundering a sum of less than one crore rupees] may be released on bail,
if the Special Court so directs:
Provided
further that the Special Court shall not take cognizance
of any offence punishable under section 4 except upon a complaint in writing
made by—
(i) the Director; or
(ii) any officer of the Central Government or a
State Government authorised in writing in this behalf by the Central Government
by a general or special order made in this behalf by that Government.
[(1A) Notwithstanding anything contained in the
Code of Criminal Procedure, 1973 (2 of 1974), or any other provision of this
Act, no police officer shall investigate into an offence under this Act unless
specifically authorised, by the Central Government by a general or special
order, and, subject to such conditions as may be prescribed.]
(2) The limitation on granting of bail specified
in 5 *** sub-section (1) is in addition to the limitations under the Code of
Criminal Procedure, 1973 (2 of 1974) or any other law for the time being in
force on granting of bail.
[Explanation.—For the removal of doubts, it is
clarified that the expression "Offences to be cognizable and
non-bailable" shall mean and shall be deemed to have always meant that all
offences under this Act shall be cognizable offences and non-bailable offences
notwithstanding anything to the contrary contained in the Code of Criminal
Procedure, 1973 (2 of 1974), and accordingly the officers authorised under this
Act are empowered to arrest an accused without warrant, subject to the
fulfillment of conditions under section 19 and subject to the conditions
enshrined under this section.]
50. Powers
of authorities regarding summons, production of documents and to give evidence,
etc.—
(1) The Director shall, for the purposes of
section 13, have the same powers as are vested in a civil court under the Code
of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the
following matters, namely:—
(a) discovery and inspection;
(b) enforcing the attendance of
any person, including any officer of a 1 [reporting entity] and examining him
on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of
witnesses and documents; and (f) any other matter which may be prescribed.
(2) The Director, Additional Director, Joint
Director, Deputy Director or Assistant Director shall have power to summon any
person whose attendance he considers necessary whether to give evidence or to
produce any records during the course of any investigation or proceeding under
this Act.
(3) All the persons so summoned shall be bound to
attend in person or through authorised agents, as such officer may direct, and
shall be bound to state the truth upon any subject respecting which they are
examined or make statements, and produce such documents as may be required.
(4) Every
proceeding under sub-sections (2) and (3) shall be deemed to be a judicial
proceeding within the meaning of section 193 and section 228 of the Indian
Penal Code (45 of 1860).
(5) Subject to any rules made in this behalf by
the Central Government, any officer referred to in sub-section (2) may impound
and retain in his custody for such period, as he thinks fit, any records
produced before him in any proceedings under this Act:
Provided that an Assistant Director or a Deputy
Director shall not—
(a) impound any records without recording his
reasons for so doing; or
(b) retain in his custody any such records for a
period exceeding three months, without obtaining the previous approval of the [Joint Director].
The issues raised:
(i)
Whether
the procedure followed by the ED in registering the Enforcement Case
Information Report is opaque, arbitrary and violative of the constitutional
rights of an accused?
(ii)
Whether
the procedure being followed under the PMLA is draconian as it violates the
basic tenets of the criminal justice system and the rights enshrined in Part
III of the Constitution of India, in particular Articles 14, 20 and 21 thereof?
(iii)
Whether there
can be a procedure in law, where penal proceedings can be started against an
individual, without informing him of the charges?
The power of ED to arrest an
individual on the basis of an ECIR without informing him of its contents is
perceived as arbitrary and violative of the constitutional rights of an
accused. Besides that, the right of an accused to get a copy of the First
Information Report at an early stage and also the right to know the allegations
are inherent part of Article 21 of Constitution of India.
It is urged that in comparison to
the constitutional law, the Cr.P.C. and the Indian Evidence Act 1872, the
provisions under the PMLA are draconian and, thus, violative of Articles 20(3)
and 21 of the Constitution. Section 50 of the PMLA is much worse than Section
67 of the Narcotic Drugs and Psychotropic Substance Act.
The Supreme Court has thus proceeded
to decipher the purport of various provisions of PMLA. As regards Section 24, in
the first place, it is observed that the legal presumption in either case is
about the involvement of proceeds of crime in money-laundering. This fact
becomes relevant, only if, the prosecution or the authorities have succeeded in
establishing at least three basic or foundational facts. First, that the
criminal activity relating to a scheduled offence has been committed. Secondly,
that the property in question has been derived or obtained, directly or
indirectly, by any person as a result of that criminal activity. Thirdly, the
person concerned is, directly or indirectly, involved in any process or
activity connected with the said property being proceeds of crime. On
establishing the fact that there existed proceeds of crime and the person
concerned was involved in any process or activity connected therewith, itself,
constitutes offence of money-laundering. On establishing these foundational
facts in terms of Section 24 of the 2002 Act, a legal presumption would arise
that such proceeds of crime are involved in money-laundering. If a person concerned
had no causal connection with such proceeds of crime, then he should be able to
disprove the fact about his involvement in any such process or activity
connected therewith and he may produce evidence to that effect. The legal presumption,
in such a situation shall stand rebutted.
It is observed by the Supreme
Court that the change effected in Section 24 of the 2002 Act is the outcome of
the mandate of international Conventions and recommendations made in that
regard. Further, keeping in mind the legislative scheme and the purposes and
objects sought to be achieved by the 2002 Act coupled with the fact that the
person charged or any other person involved in money-laundering, would get
opportunity to disclose information and evidence to rebut the legal presumption
in respect of facts within his personal knowledge during the proceeding before
the Authority or the Special Court, by no stretch of imagination, provision in
the form of Section 24 of the 2002 Act, can be regarded as unconstitutional. It
has reasonable nexus with the purposes and objects sought to be achieved by the
2002 Act. In any case, it cannot be perceived as manifestly arbitrary.
The pertinence of the aspect
relates to presumption of guilt of accused in PMLA, contrary to conventional
criminal law where accused is presumed innocent until proven guilty is against
the basic tenets of law and secondly, whether an accused arrested under PMLA
can be denied ECIR (Enforcement Case Information Report) which is akin or
equivalent to F.I.R in ordinary criminal case?
The Supreme Court has upheld section
50 of PMLA which empowers ED officials
to record statements on oath from any person. The admission so recorded
shall be admissible in Courts, unlike statement made to police u/s 161 of
Cr.P.C or confessions made to police u/s 27 of Indian Evidence Act. The ECIR
(Enforcement Case Information Report) is not required to be provided to the
accused/arrested person
The offence
of money laundering, i.e., enjoying the “proceeds of crime”, is a
“continuous one” and can be acted upon independent of
when the scheduled offence was committed. This implies holding property that is
derived from an offence which may not have been a scheduled offence at the time
of commission of the offence, will also be defined as money laundering. In
effect, the offence of money laundering has retrospective effect.
In para no.
187 of the judgment the Supreme Court had concluded as under:
(i)
The expression “proceedings” occurring
in Clause (na) of Section 2(1) of the 2002 Act is contextual and is required to
be given expansive meaning to include inquiry procedure followed by the
Authorities of ED, the Adjudicating Authority, and the Special Court.
(ii)
The expression “investigation” in
Clause (na) of Section 2(1) of the 2002 Act does not limit itself to the matter
of investigation concerning the offence under the Act and is interchangeable
with the function of “inquiry” to be undertaken by the Authorities under the
Act.
(iii)
The offence under Section 3 of the
2002 Act is dependent on illegal gain of property as a result of criminal
activity relating to a scheduled offence. It is concerning the process or
activity connected with such property, which constitutes the offence of money laundering.
The Authorities under the 2002 Act cannot prosecute any person on notional
basis or on the assumption that a scheduled offence has been committed, unless
it is so registered with the 534 jurisdictional police and/or pending
enquiry/trial including by way of criminal complaint before the competent
forum. If the person is finally discharged/acquitted of the scheduled offence
or the criminal case against him is quashed by the Court of competent
jurisdiction, there can be no offence of money-laundering against him or any
oneclaiming such property being the property linked to stated scheduled offence
through him.
(iv)
Section 5 of the 2002 Act is
constitutionally valid. It provides for a balancing arrangement to secure the
interests of the person as also ensures that the proceeds of crime remain
available to be dealt with in the manner provided by the 2002 Act. The
procedural safeguards as delineated by us hereinabove are effective measures to
protect the interests of person concerned.
(v)
Section 24 of the 2002 Act has
reasonable nexus with the purposes and objects sought to be achieved by the
2002 Act and cannot be regarded as manifestly arbitrary or unconstitutional.
(vi)
The statements recorded by the
Authorities under the 2002 Act are not hit by Article 20(3) or Article 21 of
the Constitution of India.
(vii)
Section 63 of the 2002 Act providing for
punishment regarding false information or failure to give information does not
suffer from any vice of arbitrariness.
(viii)
In view of special mechanism envisaged
by the 2002 Act, ECIR cannot be equated with an FIR under the 1973 Code. ECIR
is an internal document of the ED and the fact that FIR in respect of scheduled
offence has not been recorded does not come in the way of the Authorities
referred to in Section 48 to commence inquiry/investigation for initiating
“civil action” of “provisional attachment” of property being proceeds of crime.
(ix)
Supply of a copy of ECIR in every case to the
person concerned is not mandatory, it is enough if ED at the time of arrest,
discloses the grounds of such arrest. (c) However, when the arrested person is
produced before the Special Court, it is open to the Special Court to look into
the relevant records presented by the authorised representative of ED for
answering the issue of need for his/her continued detention in connection with
the offence of money-laundering.
CONCLUSION
The hon’ble Supreme Court has
therefore by virtue of the aforesaid judgment VIJAY MADANLAL
CHOUDHARY
(Supra) has upheld the provisions of PMLA 2002 as also the amendment
necessitated in the Act owing to earlier judgment of Supreme Court reported as Nikesh
Tarachand Shah (Supra) and after detailed
deliberation has upheld the constitutionality of provisions of PMLA 2002 and the
amendments carried out thereto. The conventional law presumes innocence of
accused, until the guilt is proved beyond reasonable doubt, however, there are
several enactments, where, the innocence of accused is not inbuilt and primary
onus of innocence are shifted on the accused. Given the nature of crime and its
effect on society, it was felt necessary that such white collared crime under
PMLA, should also have the onus to prove their innocence on the accused and the
claim of some provisions of PMLA as ultra
vires is negated and it has passed
muster. Similarly, power of ED as
embodied in Section 50 of the Act and such other ancillary power under the Act was
found necessary with a view to accord teeth to the authorities, given the magnitude
of the crime. Moreover, check and balance is already there as Adjudicating Authority
and Special Courts are constituted and empowered to deal with the issues arising
under the Act.
---------
Anil
K Khaware
Founder & Senior Associate
Societylawandjustice.com
.
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